Whether We End Up Paying For It Through Taxes Or Hyperinflation, It Will Still Come Out Of Our Pockets.

The U.S. government saved AIG from bankruptcy in September with a rescue plan that has ballooned to about $152 billion.

The article makes it clear that the bailout of AIG was largely due to AIG’s credit default swap exposure:

[The government has agreed to] clear the insurer of its obligations on about $53.5 billion in toxic mortgage debt . . . .

The development is part of the U.S. Federal Reserve’s agreement last month to buy up to $70 billion of toxic mortgage assets — collateralized debt obligations — underlying AIG credit default swaps (CDS), a type of debt guarantee.

AIG’s responsibility to post collateral on the $53.5 billion in assets has been suspended . . . .

The need to post increasing amounts of collateral to counterparties for these guarantees left AIG with deep losses over the last four quarters. It has lost $42.5 billion in that period.***

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